One Trader's Position Was So Big the Market Named Him After It

Bruno Iksil worked in JPMorgan's Chief Investment Office, a unit set up to invest the bank's surplus deposits. By early 2012 he was running a synthetic credit portfolio that had grown into something the market had never quite seen before: a single book taking enormous directional positions in the CDX.NA.IG.9 index, a basket of credit default swaps tied to investment-grade North American companies.

The positions were so outsized that they distorted the index price. Hedge funds in New York noticed: spreads were not behaving the way the underlying credits suggested they should. By talking to dealers and watching the order flow, several funds — including Boaz Weinstein's Saba Capital and Blue Mountain Capital — figured out that one client was the market and bet on a reversal. They named him 'the London Whale' in the press.

When the position turned, JPMorgan could not unwind it without moving the price further against itself. Jamie Dimon initially called the early reports 'a complete tempest in a teapot' on an April 2012 earnings call. Two months later, the bank disclosed a $2 billion mark-to-market loss; by year-end, the figure had grown to about $6.2 billion. Internal investigations later showed traders had marked their own positions, and the value-at-risk model had been quietly recalibrated in a way that masked the size of the bet.

No single rogue trader brought down a bank this time. What broke was the assumption that a hedge could not, by its size alone, become the largest source of risk in the room. The Senate Permanent Subcommittee on Investigations published 300 pages on it in 2013. Iksil was never charged.